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The Two-level CES Production Function for the Manufacturing Sector of Pakistan

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  • Ashfaque H. Khan

    (Pakistan Institute of Development Economics, Islamabad.)

Abstract

Production functions have been widely studied in the relevant literature. In this paper, apart from labour and capital, we have used energy as a factor input and calculated the elasticity of substitution between these inputs, measured technical progress, and determined the returns to scale in the manufacturing sector of Pakistan. Since we have more than two factors of production, the standard Cobb-Douglas and CES production functions do not provide satisfactory results. Hence, two-level (nested) CES production function becomes the natural choice for the appropriate technology. Using this technology, we have found low elasticity of substitution between the three factors of production. Furthermore, the manufacturing sector is found to exhibit decreasing returns to scale, having experienced disembodied technical progress at the rate of 3.7 percent per annum.

Suggested Citation

  • Ashfaque H. Khan, 1989. "The Two-level CES Production Function for the Manufacturing Sector of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 28(1), pages 1-12.
    • Handle: RePEc:pid:journl:v:28:y:1989:i:1:p:1-12
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    Cited by:

    1. Eatzaz Ahmad & Muhammad Idrees, 1999. "The Time Profile of the Cost Structure in Pakistan’s Manufacturing Sector," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 38(4), pages 1101-1116.
    2. Shahid N. Zahid & Muhammad Akbar & Shabbar A. Jaffry, 1992. "Technical Change, Efficiency, and Capital-labour Substitution in Pakistan's Large-scale Manufacturing Sector," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 31(2), pages 165-188.
    3. Khalid, Waqar & Özdeşer, Hüseyin & Jalil, Abdul, 2021. "An empirical analysis of inter-factor and inter-fuel substitution in the energy sector of Pakistan," Renewable Energy, Elsevier, vol. 177(C), pages 953-966.
    4. Ashfaque H. Khan & Mohammad Rafiq, 1993. "Substitution among Labour, Capital, Imported Raw Materials, and Bank Credit in Pakistan's Manufacturing," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 32(4), pages 1259-1266.
    5. Naqvi, Farzana, 1998. "A computable general equilibrium model of energy, economy and equity interactions in Pakistan," Energy Economics, Elsevier, vol. 20(4), pages 347-373, September.
    6. Burney, Nadeem A. & Al-Matrouk, Faisal T., 1996. "Energy conservation in electricity generation: A case study of the electricity and water industry in Kuwait," Energy Economics, Elsevier, vol. 18(1-2), pages 69-79, April.

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